Economic Structural Change as an Option for Mitigating the Impacts of Climate Change
Improving the resilience of the economy in the face of uncertain climate change damages involves irreversible investments to scale up new technologies that are less vulnerable to the effects of climate change. The benefit of having such options inc...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/04/26218888/economic-structural-change-option-mitigating-impacts-climate-change http://hdl.handle.net/10986/24211 |
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okr-10986-242112021-04-23T14:04:20Z Economic Structural Change as an Option for Mitigating the Impacts of Climate Change Golub, Alexander Toman, Michael IMPACTS OF CLIMATE CHANGE TECHNOLOGY ALTERNATIVE INVESTMENTS GREENHOUSE CLIMATE CHANGE DAMAGES UNCERTAINTIES CONSUMPTION CLIMATE CHANGE ECONOMICS LEAD ECONOMIC GROWTH COMPUTING DOMESTIC CARBON CLIMATE-CHANGE CLIMATE CHANGE COST OF PRODUCTION ENVIRONMENTAL POLICY SCIENCE CLIMATE CHANGE VULNERABILITY GREENHOUSE GAS EMISSIONS BASIC CARBON VALUE RESOURCE ECONOMICS CLIMATE CHANGE IMPACTS VARIABLE COST CLIMATE DISCOUNT FACTOR DISCOUNT RATE INFORMATION UTILITY FUNCTION IRREVERSIBLE CLIMATE CHANGE EMISSIONS INCENTIVES ATMOSPHERIC POLLUTION ENVIRONMENTAL SCIENCE CLIMATE RISKS GHGS GAS PROJECTS DAMAGES MARKET FUTURE CLIMATE CHANGE PLANNING CODES POLICY ENERGY PRODUCTION GREENHOUSE GAS COMPONENTS ASSESSING CLIMATE CHANGE EVOLUTION OF CLIMATE CHANGE KNOWLEDGE NEW TECHNOLOGIES ALTERNATIVE TECHNOLOGY PRESENT VALUE EARLIER INVESTMENT EMISSIONS CONSTRAINTS CLIMATE DAMAGE SIMULATION INVESTMENT CLIMATE CHANGE ADAPTATION ENERGY ECONOMICS CAPACITY GHG CLIMATE CHANGE RESILIENCE GLOBAL WARMING CLIMATE INVESTMENT FUTURE CONSUMPTION INVESTMENTS FINANCIAL SUPPORT ADVERSE EFFECTS OF CLIMATE CHANGE SEA LEVEL RISE NEW TECHNOLOGY LEARNING RESEARCH CLIMATE CHANGE DAMAGE TECHNOLOGIES PRECAUTIONARY APPROACH GAS EMISSIONS CAPITAL STOCKS ENVIRONMENTAL ECONOMICS SENSITIVITY ANALYSES CLIMATE CHANGE RISKS EXTREME CLIMATE CHANGE BENEFITS CARBON EMISSIONS ENERGY INVESTMENT DECISIONS Improving the resilience of the economy in the face of uncertain climate change damages involves irreversible investments to scale up new technologies that are less vulnerable to the effects of climate change. The benefit of having such options includes the avoided welfare cost of diverting consumption to scaling up the new technology after production possibilities have been diminished by climate change impacts. This needs to be balanced against the upfront cost of scaling up a technology that is potentially less productive than incumbent technologies. The paper uses a real options approach to investigate this trade-off, based on numerical simulation of a multi-period model of economic growth and climate change impacts that includes a one-time cost associated with scaling up the alternative technology. The value of the option provided by investment in the more resilient technology depends on the ex-ante volatility of climate change damages, as well as how rapidly climate change degrades the productivity of the economy's established technology. In addition, the size of scale-up cost that leaves the economy indifferent between investing and not investing in the new technology can be used to define the value of early investment in the less climate change–vulnerable technology as a sort of call option. 2016-05-04T18:13:25Z 2016-05-04T18:13:25Z 2016-04 Working Paper http://documents.worldbank.org/curated/en/2016/04/26218888/economic-structural-change-option-mitigating-impacts-climate-change http://hdl.handle.net/10986/24211 English en_US Policy Research Working Paper;No. 7637 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
IMPACTS OF CLIMATE CHANGE TECHNOLOGY ALTERNATIVE INVESTMENTS GREENHOUSE CLIMATE CHANGE DAMAGES UNCERTAINTIES CONSUMPTION CLIMATE CHANGE ECONOMICS LEAD ECONOMIC GROWTH COMPUTING DOMESTIC CARBON CLIMATE-CHANGE CLIMATE CHANGE COST OF PRODUCTION ENVIRONMENTAL POLICY SCIENCE CLIMATE CHANGE VULNERABILITY GREENHOUSE GAS EMISSIONS BASIC CARBON VALUE RESOURCE ECONOMICS CLIMATE CHANGE IMPACTS VARIABLE COST CLIMATE DISCOUNT FACTOR DISCOUNT RATE INFORMATION UTILITY FUNCTION IRREVERSIBLE CLIMATE CHANGE EMISSIONS INCENTIVES ATMOSPHERIC POLLUTION ENVIRONMENTAL SCIENCE CLIMATE RISKS GHGS GAS PROJECTS DAMAGES MARKET FUTURE CLIMATE CHANGE PLANNING CODES POLICY ENERGY PRODUCTION GREENHOUSE GAS COMPONENTS ASSESSING CLIMATE CHANGE EVOLUTION OF CLIMATE CHANGE KNOWLEDGE NEW TECHNOLOGIES ALTERNATIVE TECHNOLOGY PRESENT VALUE EARLIER INVESTMENT EMISSIONS CONSTRAINTS CLIMATE DAMAGE SIMULATION INVESTMENT CLIMATE CHANGE ADAPTATION ENERGY ECONOMICS CAPACITY GHG CLIMATE CHANGE RESILIENCE GLOBAL WARMING CLIMATE INVESTMENT FUTURE CONSUMPTION INVESTMENTS FINANCIAL SUPPORT ADVERSE EFFECTS OF CLIMATE CHANGE SEA LEVEL RISE NEW TECHNOLOGY LEARNING RESEARCH CLIMATE CHANGE DAMAGE TECHNOLOGIES PRECAUTIONARY APPROACH GAS EMISSIONS CAPITAL STOCKS ENVIRONMENTAL ECONOMICS SENSITIVITY ANALYSES CLIMATE CHANGE RISKS EXTREME CLIMATE CHANGE BENEFITS CARBON EMISSIONS ENERGY INVESTMENT DECISIONS |
| spellingShingle |
IMPACTS OF CLIMATE CHANGE TECHNOLOGY ALTERNATIVE INVESTMENTS GREENHOUSE CLIMATE CHANGE DAMAGES UNCERTAINTIES CONSUMPTION CLIMATE CHANGE ECONOMICS LEAD ECONOMIC GROWTH COMPUTING DOMESTIC CARBON CLIMATE-CHANGE CLIMATE CHANGE COST OF PRODUCTION ENVIRONMENTAL POLICY SCIENCE CLIMATE CHANGE VULNERABILITY GREENHOUSE GAS EMISSIONS BASIC CARBON VALUE RESOURCE ECONOMICS CLIMATE CHANGE IMPACTS VARIABLE COST CLIMATE DISCOUNT FACTOR DISCOUNT RATE INFORMATION UTILITY FUNCTION IRREVERSIBLE CLIMATE CHANGE EMISSIONS INCENTIVES ATMOSPHERIC POLLUTION ENVIRONMENTAL SCIENCE CLIMATE RISKS GHGS GAS PROJECTS DAMAGES MARKET FUTURE CLIMATE CHANGE PLANNING CODES POLICY ENERGY PRODUCTION GREENHOUSE GAS COMPONENTS ASSESSING CLIMATE CHANGE EVOLUTION OF CLIMATE CHANGE KNOWLEDGE NEW TECHNOLOGIES ALTERNATIVE TECHNOLOGY PRESENT VALUE EARLIER INVESTMENT EMISSIONS CONSTRAINTS CLIMATE DAMAGE SIMULATION INVESTMENT CLIMATE CHANGE ADAPTATION ENERGY ECONOMICS CAPACITY GHG CLIMATE CHANGE RESILIENCE GLOBAL WARMING CLIMATE INVESTMENT FUTURE CONSUMPTION INVESTMENTS FINANCIAL SUPPORT ADVERSE EFFECTS OF CLIMATE CHANGE SEA LEVEL RISE NEW TECHNOLOGY LEARNING RESEARCH CLIMATE CHANGE DAMAGE TECHNOLOGIES PRECAUTIONARY APPROACH GAS EMISSIONS CAPITAL STOCKS ENVIRONMENTAL ECONOMICS SENSITIVITY ANALYSES CLIMATE CHANGE RISKS EXTREME CLIMATE CHANGE BENEFITS CARBON EMISSIONS ENERGY INVESTMENT DECISIONS Golub, Alexander Toman, Michael Economic Structural Change as an Option for Mitigating the Impacts of Climate Change |
| relation |
Policy Research Working Paper;No. 7637 |
| description |
Improving the resilience of the economy
in the face of uncertain climate change damages involves
irreversible investments to scale up new technologies that
are less vulnerable to the effects of climate change. The
benefit of having such options includes the avoided welfare
cost of diverting consumption to scaling up the new
technology after production possibilities have been
diminished by climate change impacts. This needs to be
balanced against the upfront cost of scaling up a technology
that is potentially less productive than incumbent
technologies. The paper uses a real options approach to
investigate this trade-off, based on numerical simulation of
a multi-period model of economic growth and climate change
impacts that includes a one-time cost associated with
scaling up the alternative technology. The value of the
option provided by investment in the more resilient
technology depends on the ex-ante volatility of climate
change damages, as well as how rapidly climate change
degrades the productivity of the economy's established
technology. In addition, the size of scale-up cost that
leaves the economy indifferent between investing and not
investing in the new technology can be used to define the
value of early investment in the less climate
change–vulnerable technology as a sort of call option. |
| format |
Working Paper |
| author |
Golub, Alexander Toman, Michael |
| author_facet |
Golub, Alexander Toman, Michael |
| author_sort |
Golub, Alexander |
| title |
Economic Structural Change as an Option for Mitigating the Impacts of Climate Change |
| title_short |
Economic Structural Change as an Option for Mitigating the Impacts of Climate Change |
| title_full |
Economic Structural Change as an Option for Mitigating the Impacts of Climate Change |
| title_fullStr |
Economic Structural Change as an Option for Mitigating the Impacts of Climate Change |
| title_full_unstemmed |
Economic Structural Change as an Option for Mitigating the Impacts of Climate Change |
| title_sort |
economic structural change as an option for mitigating the impacts of climate change |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/04/26218888/economic-structural-change-option-mitigating-impacts-climate-change http://hdl.handle.net/10986/24211 |
| _version_ |
1764455940327735296 |